Will falling interest rates save India’s residential market?

All major cities, with the exception of Chennai and Bengaluru, exhibited slowing momentum

India’s property market faces a worrying rise in unsold inventory, after a spectacular house price boom over the past three years. Sales in India’s top eight cities fell by 4% in June 2015 compared to June 2014, with unsold inventory rising 18% during the same period, according to property research firm Liases Foras. 2015 ended with lower new launches and sales volumes, at 240,360 and 261,260 units, respectively, across the top eight cities.

Unsold inventory has now reached:

206,000 units in the National Capital Region (NCR)

181,000 in Mumbai

100,000 in Bengaluru

63,000 in Pune

41,000 in Ahmedabad

36,000 in Chennai

36,000 in Kolkata

31,000 in Hyderabad

Growth in the Reserve Bank of India’s nationwide housing price index slowed to 13.7% (8.7% inflation-adjusted) during the quarter ended September 2015 compared to the same period in 2014 – down from a 17.5% rise in Q1 2015 and 14.5% in Q2 2015.

All major cities, with the exception of Chennai and Bengaluru, exhibited slowing momentum:

Prices in Delhi rose 21.9% (16.5% inflation-adjusted) year-on-year in Q3 2015, slower than the first and second quarters’ 26.5% and 22.7%, respectively.

In Mumbai, house price rises weakened to 10.8% (5.8% inflation-adjusted) from 11.0% in Q1 and 11.1% in Q2.

In Ahmedabad, growth slowed to 7.4% (2.6% inflation-adjusted) from 9.2% in Q1 and 7.4% in Q2.

In Kolkata, growth was 7.1% (2.3% inflation-adjusted), down from 32.4% in Q1 and 19.1% in Q2.

Prices in Kochi even fell by 7.2% (-11.3% inflation-adjusted)

Bangaloreprice rises, on the other hand, have been gaining momentum from 10.0% in Q1 and 15.5% in Q2 to 19.1% (13.8% inflation-adjusted) in Q3.

Price growth in Chennai is also impressive at 12.4% (7.4% inflation-adjusted) in Q3, up from 4.9% in Q1 and 3.8% in Q2.

The Reserve Bank of India (RBI) cut its policy interest rate by 25 basis points to 6.5% in April 2016, in line with the reduction expected by economists after inflation slowed to 5.18% in February. Interest rates are now at the lowest level since 2011.

The Indian economy expanded by 7.3% during FY 2014-2015, according to the Statistical Office – the fastest rate of economic growth in the world, coming just as the Chinese economy is losing steam, with its annual growth slipping to 6.8%. The same organization forecasts growth of between 7-7.5% for India in 2016-17.